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Crude Oil Sheds 3.2%: Two Ways to Look at What Happened

Plus, a glimpse at what’s likely ahead for the energy complex

by Vadim Pokhlebkin
Updated: August 09, 2018

A curious thing happened to crude oil prices on Wednesday (Aug. 8). The market tanked 3.2%, but that's not unusual; the curiosity is in crude's fundamentals, which were said to have sent prices lower.

See, on the one hand, the Energy Information Administration said that "total U.S. stockpiles of oil and fuel rose to a seven-month high" (Seeking Alpha). That sounds bearish.

On the other hand, the same report also showed that, "U.S. crude stocks fell by 1.4 million barrels last week." (CNBC) A drop in supply is supposed to be bullish.

Why did crude oil traders choose to focus on the "bearish" news and sell -- instead of looking at the other part of the report and buying?

You could say, "China." After all, the same day, China did threaten with additional tariffs on U.S. goods. And some market commentators said exactly that: China tariffs news was the wild card, and that's what tipped the scale in favor of crude oil bears.

Maybe. Yet, consider this alternative explanation of the 3.2% sell-off on August 8.

The day before, our Energy Pro Service editor, Steve Craig, identified the end of the likely wave (ii) upward correction in crude oil prices. Below, you can see how the preceding sell-off was strong and directional, with little overlap. Steve labeled it wave (i).

The rally that followed had a decidedly corrective -- choppy and overlapping -- look and feel. Steve labeled it wave (ii) and told subscribers:

Posted: August 7

Bottom Line: Bearish against 69.83

Trendline support gave way with the renewed selling pressure. I'm looking for impulsive downside price action here...Trade below 67.87... should strengthen the bearish case.

chart1-JL

Steve's bearish "line in the sand" at $69.83 held. What's more, prices stayed below the lower trendline that had contained the previous rally (see above) -- another sign of pending market weakness.

And then came the August 8 sell-off:

Chart 2-JL

This is a textbook example of how useful Elliott waves and some basic technical analysis like simple trendlines can be when finding -- and acting on -- emerging trading opportunities.

As for the fundamentally based explanations, as convincing and logical as they sound in retrospect, the key word is "retrospect."


Now You Can Track – And Get AHEAD Of – The Psychology Trends that Often Drive Energy Prices

Crude. Brent. NatGas.

Riddle me this: The news is bullish, but oil and ETFs FALL.

Or, oil inventories are reported full, and prices RALLY.

As a trader, you see it all the time. If you sweep such "inconsistencies" under the rug, you’re missing the point.

Oftentimes, crude and natgas go where traders' psychology goes. And no other forecasting method lets you track this powerful force -- and forecast it -- as Elliott waves do.

What if you had someone in your corner to help you watch the waves of psychology in the energy markets in real time? Someone who stays alert even when you take a break? Whose job it is to help you catch the right move?

4 ways EWI's Energy Pro Service lets you trade with more confidence

If it's a major energy market, we'll help you stay on top of it.

1. You Get Timely Intraday and Daily Forecasts

Your Energy Pro Service subscription puts a veteran energy market expert in your corner. His goal is to make sure that day-by-day, hour-by-hour, you see the very latest Elliott wave picture. You get intensive intraday coverage to help you catch near-term opportunities and daily forecasts that let you get in front of longer-term waves.

Markets covered: NYMEX: crude oil, natgas, unleaded, heating oil; ICE Brent; energy ETFs (XLE, etc.)

2. You’re Ready for All Probabilities with Video Overviews

Once a week or more, editor Steve Craig records new video market overviews to show you ALL Elliott wave counts for the Energy complex. You see his outlook in detail – plus, any strong alternatives that may enter the picture. Result: You’re prepared to act on all probabilities.

3. You Get Essential Weekly Perspective

Context is key. Your Energy Pro Service subscription gives you big-picture analysis to help you ride major trends – trends that can last years. This essential perspective puts the near-term moves into context. Together, you get a comprehensive Elliott wave picture for the energy markets at every degree of trend.

4. You Become Part of an Exclusive Community of Savvy Elliott Wave Traders

We're on your side and working for you. If you have a question about the Wave Principle or our analysis, just send us an email. A team member will get back to you. If it makes sense for the answer to be shared with your Pro Service peers, we'll do so (confidentially, of course). If you're having a hard time grasping an Elliott wave concept, our Educational Consultant will find the best resource for you and send it along. We know that we're successful when you are successful. We do everything in our power to make sure that happens.


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